TaxTMI 
TaxTMI 
2025 (4) TMI 403
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....s 132 of the Act was conducted, in the case of Aachman Group and other related entities by the DDIT (Investigation), Unit-6(1), Mumbai. The case of the Assessee was also covered under such search and seizure operation and consequently notice u/s 153A of the Act dated 06.12.2019 was issued to the Assessee, in response to which the Assessee filed its return of income on dated 10.12.2019 declaring total income at Rs. "Nil". Thereafter, various statutory notices were issued, in response to which from time to time, the Assessee attended the proceedings and filed the details as called for. On verification of the details filed by the Assessee during the course of assessment proceedings and examining the return of income, it was observed by the Assessing Officer (AO) that following issue emerge: Addition u/s 56(2)(viia) of the Act. 4. The AO observed that the Assessee had purchased 73,000 shares of M/s. Utility Supply Pvt. Ltd. at Rs. 10/- per share. However, fair market value of the same appears to be more than the face value, on which the shares were purchased and therefore he asked the Assessee to furnish the valuation of shares of such company. The Assessee furnished valuation re....
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....nificant and does not reflect the trading activities in shares, the revenue from the operation is either nil or meager which shows that the Assessee has not carried out any business activities over the years, the shares of M/s. Utility Supply Pvt. Ltd. are not listed, just because in the balance sheet the Assessee has classified/shown the shares as stock in trade, the real intent of the transactions will not alter as entries in the books of accounts are not determinative or conclusive. For brevity and ready reference, the analyzation made and conclusion drawn by the Ld. Commissioner, is reproduced herein below: "8. GROUND NO 1 AND ADDITIONAL GOUND- A search u/s 132 of the I.T. Act was conducted on 22.03.2018 by DDIT (Inv). Unit-6(1) Mumbai in case of Aachman Group and other related entities including assessee. Consequent to the search, notice u/s 153(A) was issued on 06.12.2019. During the course of assessment proceedings, the A.O noted that the assessee has purchased 73,000/- shares of M/s Utility Supply Pvt. Ltd. at Rs. 10 per share. The A.O found from perusal of the financials of M/s Utility Supply Pvt. Ltd., that fair market value of its share is more than the....
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....pellant has submitted a copy of memorandum of association. It is submitted that, the alleged shares were purchased for the purpose of trading and not as an investment. In the Balance sheet also, these shares are shown as stock in trade and not as an investment. The provisions of section 56(2)(viia) are applicable for investment in capital assets and not for the regular business/trading activities. The appellant has further submitted that, on the similar facts in case of related concerns namely Muktamani Distributors Pvt. Ltd and Alishan Distributors Pvt. Ltd, the Ld CIT (A) has allowed the appeal by holding that, the purchase of shares was for the trading purpose. 10. I have considered the assessment order, submission of appellant and report received from the A.O. The appellant contended that the alleged shares have been purchased for trading activity and for the same it has relied on entries made in the balance sheet showing the same as stock in trade. Thus, the sole contention of the appellant is that the shares were purchased as a part of regular trading activity of the appellant and hence the provision of section 56(2)(vila) are not applicable. The appellant has also s....
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....ails of M/s Utility Supply Pvt. Ltd have been discussed in the order passed by me for the A.Y 2017-18. It is held that M/S Utility Supply Pvt. Ltd is a paper company not carrying out any business activity. The shares of this company are not listed and hence are not available for trading on public platform. All these companies are related concerns of the appellant and are closely held companies. 10.7 From the above discussion, it is evident that the appellant and the concerned company are related entities which are closely held. The shares of M/s Utility Supply Pvt. Ltd are not available for the trading purpose. From the financials of the same it is evident that, that M/s Utility Supply Pvt. ltd is a paper companies and not doing any business activities. In the backdrop of these facts, the contention of the appellant that the purchase of the shares is for the trading purpose, is contradictory to the facts on record. It is also evident that no such trading activity has been carried out by the appellant. These shares are still held by the appellant. 10.8 Thus the whole facts demonstrate that, the acquisition of shares of the paper company by the appellant is not for ....
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....r is to be examined on the touchstone of provisions contained in the Act. 10.9 In view of the above discussion, it is evident that the real intent to purchase the shares is not trading but to acquire the stakes in the related concerns. I have also perused the orders of Ld. CIT(A) submitted by the appellant, however I defer with the decision of my predecessor Ld. CIT(A). The appellant has not contested the valuation of shares (FMV). Accordingly, the addition made by the A.O of Rs. 61,45,870/- is confirmed. The appeal on this ground no 1 and additional ground is thus DISMISSED." 8. The Assessee, being aggrieved, has challenged the decision of the Ld. Commissioner in affirming the aforesaid addition and by filling a petition has also raised the following legal grounds: "1. The Id. CIT(A) has erred in law and in facts in not appreciating that the assessment order passed u/s 153A r.w.s. 143(3) of the Act is bad and invalid in the eyes of law. 2. The Ld. CIT(A) has erred in law and in facts in not appreciating that the assessment order dated 27.12.2019 is issued without quoting mandatory Document Identification Number on the assessment order and hen....
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.... 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 2 M/s. Navratan Management Pvt. Ltd. 2017-18 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 3 M/s. Navratan Management Pvt. Ltd. 2018-19 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 4 M/s. Utility Supply Private Limited, 2012-13 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 5 M/s. Utility Supply Private Limited, 2013-14 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 6 M/s. Utility Supply Private Limited, 2014-15 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 7 M/s. Utility Supply Private Limited, 2015-16 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 8 M/s. Utility Supply Private Limited, 2016-17 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 9 M/s. Utility Supply Private Limited, 2017-18 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 10 M/s. Utility Supply Private Limited, 2018-19 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 11 Muktamani Distributors P Ltd. 2013-14 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 12 Muktamani Distributors P Ltd. 2....
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.... the approval was sought only two days prior to the dead line like in the instant case and therefore the approval involved in the instant case is liable to be declared as invalid and not in accordance with law". 14. The Ld. Counsel further claimed that moreover, the Ld. Additional Commissioner on the very same date i.e. 27-12-2019 as mentioned above has also granted approval in the cases of other entities by composite approval, which shows that the approving authority did not have sufficient time to go through and apply his mind to each of the draft assessment orders separately, while granting the requisite approvals. Even otherwise the Ld. Addl. Commissioner has granted common approval for three assessment years, instead of separate approval for each year as mandated in law and as clarified by the Hon'ble High Court of Allahabad in the case of PCIT vs. Sapna Gupta 147 taxmann.com 288 by holding that the approval for each assessment year is required to be given separately. 15. The Ld. Counsel further claimed that most importantly, from the approval, it is clear that there is no reference or discussion of any documents found during search, statements recorded of various person....
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....ad in law. 19. The Ld. Counsel Mr. Shah, further submitted that before making final assessment orders, prior approval u/s 153D of the Act, was introduced by the legislature, so that in search and seizure cases, a higher authority should apply his mind on the facts of the case or additions sought to be made and only thereafter assessment order must be passed. However, in the instant case, such action from the approving authority, is completely missing. Therefore, on the aforesaid facts, it is clearly suggested that the action of granting the approval has only been an empty ritual on mechanical exercise. 20. The Ld. Counsel further submitted that in an identical case titled as Nilesh Shamji Bharani vs. DCIT, Mumbai ITA No.1786/M/2023 & ors. decided on 06.12.2024, the AO had sought for approval for many cases, in a single day and the approving authority also approved/accorded approval u/s 153D of the Act in various cases on a single day, by way of single approval letter and therefore the Hon'ble Tribunal quashed the approval, by holding the same as invalid. 21. The Ld. Counsel Mr. Dhaval Shah, further submitted that Hon'ble Jurisdictional Bombay High Court in the case of PCIT....
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....case of ACIT vs. Serajuddin & Co. (supra), which is paramount for adjudication of the instant issue, the Hon'ble High Court has dealt with almost identical situation/issue, wherein the approving authority has granted the approval in many cases but by a single approval and at the fag end of the time period prescribed for completion of the assessment proceedings. The Hon'ble High Court therefore considering the submissions made by the Assessee and the Revenue Department, ultimately held that there are three or four requirements {including first: the AO should submit the draft order "well in time"} that are mandated for seeking the approval u/s 153D of the Act. For brevity and ready reference, the relevant part of the judgment is reproduced herein below: 22. As rightly pointed out by learned counsel for the Assessee there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has t....
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....9.12.2010, with the indication that the cases will be barred by limitation on 31.12.2010 and therefore the approving authority vide consolidated approval dated 30.12.2010 granted the approval. As in the instant case as well, the approval was sought for by the AO only on 27.12.2019 and the last date for completing the Assessment was 31-12-2019. Admittedly 28.12.2019 and 29.12.2019 were Saturday and Sunday and therefore the approving authority had no sufficient time except two working days {27-12-2019 and 30-12-2019) and thus, inference can be drawn that the approving authority in the constrained circumstances and immense pressure, accorded the approval on the very same day of submitting of draft order or within 12 hours itself, in haste manner and without applying its mind due to paucity of reasonable time and therefore approval would entail as invalid and bad in the eyes of law. 27. The Hon'ble Jurisdictional High Court in the case of PCIT vs. Shrilekha Damani in ITA No.668 of 2016 decided on 27.11.2018, has also dealt with the issue, wherein the draft order for approval u/s 153D of the Act was submitted on 31.12.2010 and hence there was no enough time left to analyse the issue ....
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....e AO has submitted the draft order for approval u/s 153D of the Act on dated 27-12-2019, however, it is a fact that 31.12.2019 was the last date for making the assessment order and leaving aside 28th & 29th December 2019 being Saturday & Sunday, the approving authority was having just two days only i.e. 27th & 30th December 2019. Somehow, the Approving authority accorded the approval on the very same date or less than 12 hours and therefore the instant case is squarely covered by aforesaid judgment in the case of Commissioner of Income Tax, Jabalpur Vs. S. Goyanka Lime and Chemical Ltd. {supra}, as well. 33. The Co-ordinate Bench of the Tribunal in the case of Nilesh Shamji Bharani vs. DCIT, Mumbai ITA No.1786/M/2023 & ors. decided on 06.12.2024, has also dealt with the identical situation/issue, wherein approvals in 21 cases were accorded vide composite approval dated 27.12.2019, whereas the last date for completing the assessments was 31.12.2019. Coincidentally, in the instant case as well, the dates i.e. 27-12-2019 and 31-12-2019 are the same. The co-ordinate Bench found that there is no whisper of any seized material sent by the AO along with proposal requesting for approval....
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....roving authority is mandatory and therefore the approval should not be rubber stamping and mere ritual formality and should not suffer from lack of application of mind but the same has to be reasoned, based on examination of the relevant material available on record and in the approval, there should be some indication of the material examined and the order of approval is not to be mechanically granted but the same should be done, having regard to the material on record. It is the bounden duty of the AO to submit the draft assessment order, well in advance/time, so that approving authority will not face any immense pressure, due to paucity of time. Though the statute has not provided any format for granting an approval but the approval must reflect the basis of the material and reasons, on which the approval is granted. 37. Coming to the instant case, finally this Court reiterate and order as under: That in the instant case, the approving authority on the very same date of submitting the draft order on 27-12-2019, granted the approval and it is a fact that 28th & 29th of December 2019 were holidays being Saturday and Sunday and 31st December 2019 was the last date for making t....
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....nt orders for approval u/s 153D of the Income Tax Act, 1961 submitted vide covering letter dated 27.12.2019 have been perused. The assessed income in the captioned case for the relevant assessment years have been proposed as follows: A.Y. Assessed U/s Return Income(in Rs.) Assessed income (In Rs.) 2013-14 153A r.w.s. 143(3) (-)8,099/- 9,72,621/- 2017-18 153A r.w.s. 143(3) (-) 11,88,638/- 49,57,232/- 2018-19 143(3) 6,314/- 4,73,114/- 1 The draft assessment orders made in these are hereby approved u/s. 153D of the I.T. Act, 1961. Subject to the following conditions: I. A comprehensive office note under the head "note-not for the assessee" is advised to be kept in the assessment order elaborating the action and your conclusion on the direction contained in the Appraisal Report and also your findings on the 04/59. Gilson langt Seized documents. The office note should also give your findings gruthe important documents found / seized, Hard Disc 95mb "data, bank accounts, Demat accounts etc. and the implication there of on the assessment culminating into the proposed 2 7 DEGsbulsed income as above. Affine of the Asst./Dy. C: 1 n/A\ Mumbai II. The office note sho....